Trans-Pacific trade pact – The Core IAS

Trans-Pacific trade pact


Why in the news: Britain on Friday agreed to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade pact based around the Pacific rim, as it seeks to build ties around the world after leaving the European Union.

What is CPTPP?

  • CPTPP is a free trade agreement (FTA) that was agreed in 2018 between 11 countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
  • Britain will become the 12th member, and the first to join since the partnership since its inception.
  • CPTPP countries will have a combined GDP of 11 trillion pounds ($13.6 trillion) once Britain joins, or 15% of the global GDP.
  • It does not have a single market for goods or services, and so regulatory harmonization is not required, unlike the European Union, whose trading orbit Britain left at the end of 2020.

How much does Britain trade with CPTPP?

  • Britain says that exports to CPTPP countries were worth 60.5 billion pounds in the twelve months to end-Sept. 2022.
  • Membership of the grouping will add another 1.8 billion pounds each year in the long run, and possibly more if other countries join.
  • But in an impact assessment of the deal when negotiations started in 2021, Britain said the agreement is estimated to deliver an increase of just 0.08% to GDP over the long term.
  • The UK Trade Policy Project said that only Malaysia and Brunei weren’t covered by existing FTAs, and they only account for 0.33% of UK trade. “Early analysis of CPTPP operations suggested that it was making little difference to trade flows,” It said, adding it did little for Britain’s service sectors but imports from countries like Vietnam would grow over time.

Rules of Origin Benefits

  • Flint Global said that exporters could benefit from CPTPP membership even when trading with countries where there is a bilateral FTA.
  • To benefit from preferential tariffs, exporters must demonstrate a product as a sufficient proportion of “locally” sourced parts.
    Rules of origin under rolled-over post-Brexit free trade agreements with Japan, Mexico, and Canada, for instance, allow exporters to count EU inputs as “local”.
  • However, under CPTPP, inputs from CPTPP members can usually be considered local, giving exporters another option if it is beneficial. The practical benefit for UK exporters here is optionality.

Sectoral Impact

  • Britain has agreed with a quota on beef imports but did not agree to lower food standards, under which hormone-treated beef is banned.
  • Tariffs on palm oil from Malaysia will be liberalized, and Britain also agreed on tariff reductions on bananas, rice, and crab sticks following requests from Peru, Vietnam, and Singapore respectively.
  • Britain highlighted that 99% of exports to CPTPP would be eligible for zero tariffs, including cheese, cars, chocolate, machinery, gin, and whisky. The UK’s accession to CPTPP will open up new opportunities for Scotch Whisky and other UK products in key markets in the region.
  • While the long-term benefit for Britain’s economy is set to be modest, Britain has other reasons for joining the bloc.
  • UK Trade Policy Observatory defined Britain’s accession as a “big geopolitical strategy gain with a small economic gain.” China has applied to join CPTPP, and the Observatory cited Britain’s pivot towards the Indo-Pacific, where it has highlighted China as an “epoch-defining challenge.

Hence, The CPTPP could enable the UK to enhance strategic ties with like-minded countries to protect a free and open Indo-Pacific region.


Source: Indian Express

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